With the right strategy, you can spend less when borrowing for a home.
- Mortgage rates have risen sharply since the start of 2022.
- You could still manage to get a more competitive interest rate on your loan than the average borrower.
Between mid-2020 and late 2021, homebuyers looking to take out a mortgage were able to benefit from ultra-low rates. But this ship has clearly sailed for today’s buyers.
Mortgage rates have been rising since the start of 2022. And they’ve been rising at a very rapid pace. Worse still, there is a good chance that mortgage rates will continue to climb as the Federal Reserve moves forward with a series of planned rate hikes.
If you’re looking to buy a home, you may be ready to accept the fact that you’re going to end up with an unreasonably high interest rate on your mortgage. But before you do, consider these strategies to save money on your home loan.
1. Increase your credit score as much as possible
The higher your credit score when you apply for a mortgage, the more likely you are to get a more competitive rate on your loan. Now, that doesn’t mean you have to push for perfect credit – it’s really hard. But if you’re able to get your score into the upper 700s or the lower 800s, you’ll put yourself in a strong position to reap mortgage-related savings.
There are several ways to increase your credit. First, pay all bills on time. Your payment history carries more weight than any other factor when determining your credit score, so if you’re diligent about making payments on time, you’ll be doing yourself a big favor.
At the same time, work to reduce existing credit card debt. This could quickly increase your credit score and also leave you with a lower debt-to-equity ratio, which is another metric that mortgage lenders look at when evaluating home loan applicants.
2. Opt for a shorter term loan
The longer it takes you to pay off your mortgage, the higher the interest rate on your loan can be expected. If you are willing and able to take out a 15 year mortgage on a 20 or 30 year loan, you will usually be able to get a lower interest rate, sometimes much lower.
Of course, signing a 15-year loan also means facing much higher mortgage payments on a monthly basis, so you’ll need to work out the numbers and make sure you can swing them. But if you’re able to fit those higher monthly payments into your budget, you could end up with a large amount of interest-related savings.
When it comes to granting home loans, each mortgage lender is able to set their own rate, which means that there may be one lender whose offer is better than another. That’s why it’s so important to shop around for a home loan rather than accepting the first offer you receive. Even a slightly lower interest rate could mean big savings by paying off a large sum of money over a longer period of time.
Although today’s mortgage rates are much higher than they were last year, that doesn’t mean you’re doomed to end up with a rate that isn’t affordable. If you take these steps, you may be able to save some money at a time when it has become more expensive to borrow in all areas.
The Best Mortgage Lender in Ascent in 2022
Mortgage rates are rising – and fast. But they are still relatively low by historical standards. So if you want to take advantage of rates before they get too high, you’ll want to find a lender who can help you get the best rate possible.
This is where Better Mortgage comes in.
You can get pre-approved in as little as 3 minutes, without a credit check, and lock in your rate at any time. Another plus? They do not charge origination or lender fees (which can reach 2% of the loan amount for some lenders).
Read our free review